CAREC Institute’s Quarterly Economic Monitor No. 22

The CAREC Institute has published its October 2026 Quarterly Economic Monitor. Main conclusion about the region’s economic performance in the first nine months of 2026: The CAREC region’s growth remains strong and diverging, energy price shock is reflected in increase of inflation.

Growth remains strong on average but is narrowly based and diverging. Real GDP growth averaged about 6.2% across the 11 CAREC economies in the first half of 2026, unchanged from a year earlier. The stable average hides a region moving at three different speeds. The Kyrgyz Republic, Uzbekistan, Tajikistan, Georgia and Mongolia are growing at 7–11%. Turkmenistan, Kazakhstan and the PRC are growing at a moderate 4.5–6.5%, and Azerbaijan and Pakistan at below 4%. In most rapidly-growing economies one engine dominates, whether a public construction boom, a mining surge or remittance-financed consumption. Private, non-resource investment remains weak. IFIs have raised their regional forecasts to 5.3% for 2026 and 5.0% for 2027, but these still imply a slowdown as one-off drivers fade.

An energy-price shock has interrupted the disinflation trend. Energy prices rose about 32% (yoy) in the first nine months of 2026 because of the Middle East conflict, and food prices followed. Average inflation rose to 7.5%, and global factors now explain a growing share of it. Inflation is above target in six of the nine economies with explicit inflation targets, and close to double the inflation target in Kazakhstan, the Kyrgyz Republic, Mongolia and Pakistan. The monetary response has been uneven. Real policy rates remain high in Kazakhstan and Uzbekistan but are close to zero in Mongolia and the Kyrgyz Republic, where inflation expectations are above target and demand is strong. In several countries, fiscal policy is adding to demand when it should be saving the windfall revenue from higher commodity prices.

The commodity windfall has strengthened external balances, but unevenly and likely temporarily. The average current account deficit narrowed from 4.1% of GDP to 1.2% in H1 2026. The gains went to oil, metal and gold exporters and reflect prices more than volumes, since oil output fell in Azerbaijan and Kazakhstan. Net energy importers face higher import bills, and Uzbekistan’s current account deficit widened to 7.0% of GDP. Foreign reserves exceed three months of imports in all countries. However, a large part of these reserves is held in gold in Kazakhstan, Uzbekistan and the Kyrgyz Republic, so buffers are exposed to a correction in gold prices.

Structural change is under way but remains largely led by the state. FDI is shifting from resource extraction toward manufacturing, energy and infrastructure, and the PRC is the leading investor. Large corridor projects, digital customs systems and tax reforms are the main levers of diversification. However, FDI is still relatively small, and intra-regional integration remains shallow.

Risks are tilted to the downside, and policy needs to lean against the cycle. The main risks are renewed energy-price volatility, the expiry of the US–PRC tariff suspension on 10 November, secondary sanctions, tighter global financial conditions and climate shocks. Policy priorities are to: (i) tighten monetary policy where real rates are near zero and inflation expectations are elevated; (ii) save commodity windfalls, and replace broad price subsidies with targeted, temporary fiscal support; (iii) strengthen fiscal rules and medium-term frameworks so that fiscal policy stops amplifying the economic cycle; and (iv) raise private investment and deepen regional trade facilitation, so that transport corridors become economic corridors.